AmeriDebt, Inc. will shut down its debt
management operation as part of a settlement of Federal Trade Commission charges
that it deceived consumers into paying at least $170 million in hidden fees. The
FTC charged that the company misrepresented that it was a nonprofit credit
counseling organization that would teach consumers how to manage their finances
for no up-front fee. The settlement requires AmeriDebt to transfer all current
clients’ accounts to a third party and bars the company from participating in
any aspect of the credit counseling business in the future. The settlement does
not include the other defendants – the FTC’s case against Andris Pukke,
DebtWorks, and the relief defendant, Mrs. Pukke, will continue.

In a complaint filed in November 2003, the FTC charged that AmeriDebt, Inc.,
DebtWorks, Inc., and Andris Pukke deceived consumers with claims that AmeriDebt
was a nonprofit organization that could help consumers get out of debt without
an up-front fee. The FTC charged that, rather than operating for charitable
purposes as advertised, AmeriDebt was funneling profits to affiliated for-profit
entities, including DebtWorks and Andris Pukke. According to the FTC, AmeriDebt
deceived new clients into making a “voluntary contribution” to enroll in the
program. The FTC alleged that AmeriDebt kept these initial “contributions” as
fees without consumers’ knowledge, rather than disbursing the money to
consumers’ creditors as promised.

The FTC’s complaint also charged that, despite promises to teach them how to
manage their money to avoid future debt, the defendants simply enrolled all
customers in debt management plans (DMPs). In the DMP, consumers made a single
monthly payment to AmeriDebt for all their unsecured debts; the payment was then
to be disbursed to the consumers’ creditors. The FTC charged AmeriDebt with
deceptive practices and also with violating the Gramm-Leach-Bliley (GLB) Act by
failing to provide consumers with required privacy notices. In addition, the
complaint named Andris Pukke’s wife, Pamela Pukke, as a relief defendant.

In June 2004, AmeriDebt filed for bankruptcy protection in the U.S. Bankruptcy
Court for the District of Maryland. At the request of the FTC and others, the
bankruptcy court removed existing management and appointed a Trustee to oversee
AmeriDebt.

The stipulated final order bars AmeriDebt from participating in the credit
counseling, debt management, or credit education business. As part of the
settlement and the bankruptcy case, the company will shut down its operations by
transferring all existing DMPs to a third party. The Trustee, Mark Taylor, Esq.
of the law firm of Arent Fox PLLC, has already taken steps to transfer
AmeriDebt’s existing DMPs to a reputable credit counseling agency consistent
with the terms of the order.

In addition, the stipulated final order prohibits AmeriDebt from misrepresenting
that it is a nonprofit organization; that it does not charge up-front fees for
its services; and that it will counsel consumers about their finances. The
company also is prohibited from violating the GLB Act in the future. The order
requires the company to file a plan of liquidation with the bankruptcy court. In
addition, the order contains a judgment of $170 million, but the FTC will
collect on this amount, if at all, through the AmeriDebt bankruptcy case.
Finally, the order contains standard recordkeeping requirements to assist the
FTC in monitoring the defendant’s compliance.

The Commission vote authorizing staff to file the stipulated final judgment and
order was 5-0. The order was filed in the U.S. District Court for the District
of Maryland on March 18, 2005.

Note: This stipulated final order is for settlement purposes only and does not
constitute an admission by the defendant of a law violation. A stipulated final
order requires approval by the court and has the force of law when signed by the
judge.